Businesses need to understand the ‘new rules’
The numbers are eye-watering. More than £1 trillion of government money has flooded the UK economy since COVID-19 reached our shores and the lockdown restrictions were brought in, transforming our economy overnight.
The government is now a creditor to the likes of Marks & Spencer, BASF and Tottenham Hotspur as part of the COVID Corporate Financing Facility, which lends money to companies through commercial paper.
Project Birch is likely to see the government take significant stakes in companies operating in strategically important sectors of the economy. Meanwhile, a wave of corporate failures and restructurings, predicted by many to come in the second half of the year when the state aid tap is largely turned off, will further place government at the heart of UK business.
But many companies continue to operate free from direct government support.
As of June, listed UK companies had raised more than £14 billion in secondary equity issues – helping them to navigate the challenges of the crisis while simultaneously avoiding reliance on the public purse.
Many firms have sought to distant themselves from government, with an increasing number of organisations handing back money ‘borrowed’ as a result of furlough, including Redrow and Taylor Wimpey in the building sector and others such as Ikea and the outsourcer, Bunzl.
Meanwhile, Associated British Foods-owned retailer Primark stated its intention not to take advantage of a government scheme that would have swelled its coffers by £30 million.
Raising private capital means those firms won’t face the direct scrutiny from the UK Government Investments group (UKGI), which manages public stakes in private businesses.
However, it’s a mistake to think that private cash absolves companies from playing by the ‘new rules’.
We’ve all been beneficiaries of implicit government sustenance through the last months, meaning Whitehall is now a critical stakeholder for every company operating across the country today.
Government will play an increasingly interventionist role in the economy in the months and years ahead, particularly at times of significant dislocation and upheaval. It will also closely measure the wider return-on-investment associated with the expenditure it has injected into the economy over the crisis: government will not be passive.
Those that engage with government will reap the rewards
Rather than consider this a burden on business, private firms have a unique opportunity to work with government and influence decision-making over the coming years.
Many areas of policy are currently being shaped by government as it considers the post-Brexit UK world, including industrial policy, for example. Firms have a chance to meaningfully influence what these new agendas look like.
With the overlap between business and government at a generational high point, companies will need to show and articulate to government how they are playing a positive role in the wider UK recovery.
At a time when unemployment is predicted to reach levels we haven’t seen in the UK since the 1980s, companies can show their employment credentials, for example. Firms can show their worth to the UK at both a national and local level.
In these tough times, handing out whopping remuneration packages to management or paying large dividends to shareholders will not be viewed favourably, whether it’s ‘allowed’ or not.
Those firms that choose to ignore the ‘new rules’ face the possibility of government censure in a host of possible ways.
Sectors that are thought to be unfairly profiteering from the crisis in the months ahead face the very real prospect of windfall taxes coming their way. Predators looking to swoop on the carcasses of failed companies in the autumn should take heed.
Meanwhile, at a time when the government has committed to spending its way out of recession through rapid infrastructure development, firms who have failed to adhere to the ‘new rules’ could quickly find themselves cut-out.
Raising private equity will ensure that a company isn’t subjected to an onerous National Audit Office visit. But it won’t shield an organisation from government and the ‘new rules’ that now govern the UK’s corporate landscape.
Those that choose to work with government will undoubtedly reap the benefits over those that choose an alternative route.